Question

1. Expected Return If a company's current stock price is $26.10 and it is likely to pay a $1.85 dividend next year. Since analysts estimate the company will have a 15% growth rate, what is its expected return?

• 2.13%

• 7.09%

• 15.00%

• 22.09%

2. Average Return The past five monthly returns for K and Company are 4.85 percent, 4.73 percent, -1.45 percent, 3.85 percent, and 7.85 percent. What is the average monthly return?

• 3.966%

• 1.894%

• 4.546%

• 1.653%

3. Average Return The past five monthly returns for K and Company are 3.85 percent, 4.02 percent, -1.35 percent, -.85 percent, and 8.60 percent. What is the average monthly return?

• 3.734%

• 1.556%

• 2.854%

• 1.189%

Answer 1

Ans 1) 22.09%

P0 =	Price of Share
D1 =	Current Dividend
Ke =	Cost of Equity
g =	growth rate
P0 =	D1 / (Ke - g)
26.10 =	1.85 / (Ke- 15%)
Ke - 15% =	1.85 / 26.10
Ke - 15% =	7.09%
Ke =	22.09%

Ans 2) 3.966%

Period	RETURN
1	4.85
2	4.73
3	-1.45
4	3.85
5	7.85
Total	19.83
Average Return =	Total Return / NO of Periods
	19.83 / 5
	3.966

Ans 3) 2.854%

Period	RETURN
1	3.85
2	4.02
3	-1.35
4	-0.85
5	8.6
Total	14.27
Average Return =	Total Return / NO of Periods
	14.27 / 5
	2.854